Part two of our questions & answers has arrived. If you missed part one, see it here

Part two covers valuation reports, flats and financing pubs with £5000.

If you have a particular question to ask Howard or have common questions you are asked, get in touch and let us know.  Call Howard now on 01332 244566.

Q6. Why does a house divided into two or more flats have to have a commercial mortgage not a residential or buy-to-let mortgage?


Because the residential lenders, who are the ones who promote “buy-to-let” mortgages, stick rigidly to one self contained dwelling unit = one mortgage (the only exception being granny flats): commercial lender’s don’t.  Fortunately, the commercial lenders interest rates and fees are comparable with some of the buy-to let lenders.

Q7. We have got lots of security and a substantial outside income so why can’t we get a mortgage on the hotel/pub/restaurant/shop we want to buy?

A. You may be able to, but it depends on which lender you apply to and how you approach them.  (You may need a good broker again.)  The regulatory authorities and the Bank of England are very keen that lenders thoroughly research how a borrower is going to repay. While outside incomes are useful, they may have to cover existing mortgages and loans, but in any event lenders don’t like businesses being subsidized by other incomes: businesses should pay for themselves.

Moreover, lots of people drift into buying a leisure sector business (such as a pub or a shop) without really knowing what they are letting themselves in for.  Lenders are very keen, therefore, to ensure prospective borrowers have relevant experience.  However, what is “relevant” can be a matter of opinion and how much of it one needs will vary from situation to situation.

Q8. Can we get a mortgage on the shop/pub/takeaway/care home we want to buy when it does not have very good accounts?

Sometimes you can.  The question is “Why are the accounts poor?”  Is the turnover good but the profit margin poor or costs too high?  Or is the turnover poor?  And is it the declared turnover or the real turnover.  Purchasers have to be very wary of the “good excuses” from the vendors …. the range of which can be superbly imaginative!  Sorting out fact from fiction is one area where being experienced in  the type of business helps.

The other value of experience is in convincing a lender that you can make the business profitable.  There are tried and tested ways of convincing lenders so whether or not you can buy any business will usually depend on the type of business, its current trade and how you prepare your case.

Q9. Why do valuation reports on commercial property for lenders cost so much more than reports on residential property of the same value?

Reports on commercial property are far more thorough and cover different aspects.  A valuation report on a house is usually two or three pages long and is mostly a tick-box document.  Valuation reports on the simplest commercial unit may be 15 pages long plus another 15 pages of notes.  The inspections of the property, the background research and the preparation all take time, and time is money.

Secondly, and perhaps more significantly, if a lender repossesses a property and sells it for less than the value suggested was the market valuation, the lender can sue the valuer.  And they have; lots of times.  So often, in fact, over the last five years that valuers’ professional indemnity premiums have shot through the roof (one small firm’s going from about £1,000 a year to £23,000!)  Many firms have not even been able to get professional indemnity insurance and have gone out of business.  A proportion of each fee charged is, therefore, going to cover the valuer’s insurance.

10. How do I find finance to buy a pub? I’ve got £5,000?

I get a lot of these, and they’re not all hopeless!  Many leasehold pub businesses, for example, are bought for cash and this may be raised from freehold property owned by the enquirer whether by remortgage or sale.  Indeed far more freehold pubs were sold prior to 2008 because people could and would sell their properties to buy this type of business.  Interestingly, even though the housing market is pretty buoyant again now, far more people are wanting to keep their houses now, as well as buy the business.

For those who have little cash and no property but still want to get into the licensed trade,  I take the time to run through the places they may get cash from (such as family) and the levels at which they can get into the trade moving down from freehold, leasehold, protected tenancy to even pub management.  All have their merits, not least in ticking the experience box.  Tortoises and hares come to mind.

These conversations can take half an hour and usually result in no immediate business for me, but I would rather have enquirers fully understanding the situation than going onto the internet and finding firms who will take thousands of pounds off them in fees and still leave them without a business.